“Heightened Expectations”for Corporate Governance
AIBA 2nd Annual Compliance SeminarJune 14, 2012
Lester Miller, Senior International Advisor
International Banking Supervision
Agenda
OCC Supervisory Focus:
• Heightened Expectations (HE) for Large Banks(Generally over $50B in total assets)- Progress Assessment- OCC Focus
• Federal Branches
Large Bank Supervision Focus
Heightened Expectations
• Sanctity of the charter.
• Board willingness to provide credible challenge.
• Talent management and compensation.
• Risk appetite – defining and communicating across the company.
• Strong audit and risk management functions.
Large Bank Supervision Focus
HE Progress Assessment
• Banks made notable changes to strengthen governance practices. • Added expertise to their boards. • Reorganized risk functions to improve independence and
oversight. • Invested in technology and talent. • Implemented first generation risk appetite frameworks. • Elevated stature of many independent risk functions.• Lines of business are taking ownership of risk. • Identified ways to enhance internal audit.
Large Bank Supervision Focus
HE Progress Assessment (continued)
• Despite progress, work remains.• Top supervisory priority in our largest banks.
Heightened Expectations
Sanctity of charter – OCC focus
• Assess governance structure to ensure bank safety and soundness.
• Expectation that appropriate control systems are in place.
Heightened Expectations
Board credible challenge – OCC focus
• Discuss risks, issues, and leading practices in risk management with independent board members.
• Determine if board and management have a prudent, principles-based approach to decision-making.
Heightened Expectations
Talent management and compensation – OCC focus
• Talent Management - Ensure the board, management, and risk functions have adequate skills.
• Compensation Practices – Ensure compensation plans:- balance risk/reward,- are compatible with effective controls,- and are competitive for attracting and retaining necessary
talent.
Heightened Expectations
Risk Appetite – OCC focus
• Risk Appetite Statements – Ensure these contain both qualitative and quantitative tolerances, address all relevant risks, and tolerances are reasonable.
• Strategy and Planning Processes – Ensure the bank has a prudent strategic vision and plans align with risk appetite.
• Monitoring – Ensure processes monitor alignment with tolerances and escalate exceptions.
• New or changed products and services – Ensure evaluation against risk tolerance and subject to effective risk management.
Heightened Expectations
Strong audit and risk management – OCC focus
• Clarity of Roles & Responsibilities – Evaluate for business lines, support functions, independent risk, audit, and other control functions.
• Risk Culture - Determine how board and executive management establish & maintain a strong risk culture.
• Suitable Stature/Independence – Evaluate status.
Heightened Expectations
Strong audit and risk management – OCC focus (cont’d)
• Independent Assessment – Determine if these functions provide reliable assessments of risk levels and trends.
• Credible Challenge – Determine whether these functions are providing credible challenge.
• Prioritize Areas – To achieve “strong” risk management and audit ratings.
Heightened Expectations
Federal Branches - OCC focus
• Continued progress under HE.• BSA/AML/OFAC supervision.
Heightened Expectations
Federal Branches - OCC focus (cont’d)
• Audit - Link universe to new products and expanding areas.- Ensure reasonable and supportable frequency of reviews.- Look at backlogs and staffing in operational areas.- OCC will leverage off audit possible.
Summary
In conclusion:
• We are facing numerous complex issues and challenges. • Regulatory changes will have significant impact.• Expectations are high. • HE translate into better governance in managing risks.